Part 5 – Tax Advantages For Residents

Foreigners sometimes believe that taking out an official residence permit in Spain will cost more money and expose them to Spanish taxes which non-residents can avoid. The reverse is actually true. The resident property owner has a number of tax advantages over the non-resident.

Exemption From Capital Gains Tax

(Under the following circumstances)

Residents over 65

An official resident of Spain aged 65 or more who has lived in a principle residence for three years is not subject to CGT when selling the residence. If you are 65 or over and hold a Spanish residence permit or the EU certificate of registration, you can buy a principal residence this year, live in for three years and sell it on with no capital gains tax to pay.

Residents reinvesting profits in a new home

An official resident of Spain who reinvests all the proceeds of a house sale in the purchase of another Spanish residence as a principal residence will have complete relief from CGT. If a portion of the total amount of the house sale is used, a percentage of relief up to the amount invested will be granted. However, the seller must have lived in the home for three years to qualify.

Holders of usufruct
These are people who have the right to live in a property until their death. A person of 65 or older who has a contract with a company to sell a principle residence in exchange for a lifetime right to inhabit the property and a monthly stipend will not be subject to tax. This makes such deals to turn home ownership into lifetime income more attractive for older persons of modest means. The right to inhabit the property is called “usufructo”.

3% Retnetion Not Applicable

If you are a resident and you sell your property, you are not subject to having 3% of the total purchase price withheld and deposited with Spain’s tax authorities as a guarantee against your capital gains tax liability. Also, any tax payable on the sale will not be due until the following year. A non-resident must however declare and pay within 30 days.

95% Reduction in Inheritance Tax

Official residents of Spain who leave their principle residence to a wife or to children, who are also official residents, may be eligible for a 95% reduction in their tax base under the national law. This is 99.9% in Andalusia.

Three conditions apply to be eligible for this reduction:

  1. You must have held an official residence permit for at least three years.
  2. The home you bequeath must be your principle residence and you must have lived in it for at least 3 years.
  3. The heirs must undertake not to sell the property for 10 years, or for 5 years in many regions. If they do, they are subject to taxation.

This reduction applies only up to a maximum of 120,000 euros. For example if the inheritance is a property worth 120,000 euros, you can reduce this total by 95%, deducting 114,000 euros, and therefore only paying tax on 6,000 euros, i.e. no tax at all.

This reduction is also available for a principal dwelling left to a brother or sister over 65 years of age who has been living with the testator for the previous two years. The reduction does not apply to any other assets, such as cars, yachts or shares in companies, only to the home itself.

Annual Imputed Income Tax Not Applicable

Spanish property owner’s imputed income tax does not apply to the owner’s principal residence. A resident of Spain also has an exemption, which ended in 2007, on the first 108,000 euros of valuation for Spanish capital assets tax.

Unlimited Stay

If you actually live most of the year in Spain as a non-resident, then you are breaking the law as it says that your tourist stay, even as a European Union citizen, is limited to 180 days per year. You can be fined 300 euros if you over-stay this limit.

Resident Pays Captial Gains Tax As Income Tax

A resident pays CGT as part of income tax, so if you sell in 2009, you do not declare the tax until May of 2010 when you file for Spanish income tax. In Spanish, the capital gains is called “incremento de patrimonio”. Until 2007, the resident had his capital gain taxed at a maximum rate of 15%. Under the new law, this is 19%, i.e. just under 20,000 euros on a profit of 108,000 euros.

Residence Permits

The Spanish Royal Decree 240/2007 went into force in 2007 ending the need for EU citizens to obtain a residence card in Spain. EU citizens are now issued with a certificate of registration which also contains the EU citizen’s NIE number. Only citizens of the EU are entitled to this certificate (including the European Economic Area and Switzerland). All other nationals must apply for cards as before and this also applies to non-EU family members of an EU citizen.

Part 6: Registration At Your Town Hall – Available Monday 26th

The “Padrón” is the list of all the people who live in a certain town. “Empadronarse” is the act of registering yourself on this list at your local Town Hall. Continued tomorrow…

Perez Legal Group

Tel: +34 952 833 169

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